1.66 For the Conventional Procurement Option, the Post-FBC Optimism Bias Factor reflects, in the main9, the variance that is often seen between FBC estimates of costs, income and benefits and actual outturn costs, the economic value of delays incurred by Procuring Authorities by the time the construction element of the project has been completed and the shortfall in benefits achieved by the project, perhaps through late delivery of the asset.
1.67 The testable risk management proposition here postulates that this variance emerges for Procuring Authorities because, first, estimates completed by the Procuring Authority at the FBC stage are completed at a lower level of confidence than under PFI and, second, that the contractual arrangements that result from conventional procurement typically insulate the Procuring Authority less well from the impact of risks that crystallise following contract award than those achieved under PFI.
1.68 A Procuring Authority might be able to argue that the Post-FBC Optimism Bias Factor for the Conventional Procurement Option is similar to that for the PFI Option if it can demonstrate that:
• it routinely achieves the same, very high levels of confidence in its cost/benefits estimates for conventionally funded projects as is seen under PFI; and
• the contractual arrangements it normally enters into following conventional procurement provide a similar level of protection to the impact of unexpected costs and/or shortfall in benefits to that achieved (and paid for) under PFI.
1.69 A Procuring Authority may be able demonstrate this in part by, for example, showing that it typically conducts a more detailed level of investigation than is normal in the sector, or by showing that it tends to complete more design definition or that it undertakes more comprehensive trials, pilots or simulations than is usual. It might also argue that it expects to benefit from experience gained by learning from other projects.
1.70 Such arguments might substantiate a lower level of Post-FBC Optimism Bias than is typical across the sector for the Conventional Procurement Option and this should be directly observable from studying other projects completed by the Procuring Authority. However, given that the input-based nature of a typical conventional procurement means that the contractual incentives are less well aligned with the production of the benefits required than they are under PFI, it will be more difficult for Procuring Authorities to argue that the differential can be totally eroded.
9 For certain Procuring Authorities the Post-FBC Optimism Bias Factor may also include the variance in project costs seen between the estimated costs of the project (as they appear in the FBC under conventional procurement) and the tender prices actually received by the Procuring Authority's following competitive tender, if the tender exercise is run after the FBC has been completed. This will not be the case for Procuring Authorities where conventionally procured FBCs typically coincide with contract award.